Ian Cowie was named Consumer Affairs Journalist of the Year in the
London Press Club Awards 2012. He has been head of personal finance at
Telegraph Media Group since 2008, having been personal finance editor
since 1989. He joined the paper in 1986. He is @iancowie on Twitter.

Barclaycard’s 0% credit for 24 months could end with a horrible hangover

Barclaycard’s 0% credit for 24 months offer will escalate the price war with rival credit card providers. This can be regarded as welcome evidence of vigorous competition in this corner of the banking industry. Or as an irresponsible and ill-timed invitation in the middle of the credit crisis for even more people to try to live on the never-never.

Britain’s biggest credit card’s offer to extend 0% interest on balance or debt transfers over two years is eye-stretching. But so is its typical annual percentage rate (APR) of 17.9pc, which applies to any debts outstanding after the sweetheart deal expires.

That’s more than triple the annual rate of inflation, as measured by the Retail Prices Index (RPI) at 5.2pc and a scorching 35-and-a-bit times Bank of England base rate of 0.5pc. Barclaycard also charges a handling fee, equal to 3.2pc of the debt being transferred from other cards.

Even allowing for costs, such as non-payment by borrowers who default, you can see why Barclaycard is such a profitable business. In fairness, it is also an extremely popular proposition, with 12m customers in the United Kingdom and another 10m overseas.

Nobody forces any of these people to borrow at such high rates – and about half of them repay their debts in full each month, so enjoy free credit for short periods. Now the new market-beating offer extends the illusion of apparently ‘free money’ for two years.

Dave Chan, chief executive of Barclaycard, calculates that a customer transferring £3,000 from a competitor’s credit card, with an APR of 18.9pc, will save £935 in interest payments over the 24 month period. He added: “We know that Christmas is an expensive time of year for our customers – that’s why we’re launching a product that makes it easier to pay off your Christmas spending, without being charged interest for two years.”

But I can’t help feeling uneasy about the timing of this offer. While many people will no doubt find it useful, others may be tempted to spend more this Christmas than they would otherwise have done – and wake up with a thumping financial hangover in two years’ time.

So it bears repeating that the credit crisis was caused by too many people living beyond their means for too long; spending too much and saving too little. You cannot borrow your way out of debt. Promoting credit on even easier terms this Christmas could prove as irresponsible as urging a drunk to have another drink.

Regular readers will know that I am no fan of increased regulation but it is high time the Financial Services Authority took a tougher line with the way that consumer debt is being marketed. The effect of FSA policy to date has been to make it far too easy to run up debts but much too difficult to start a savings plan.

You can obtain a store card or credit card in minutes but it requires hours of form-filling to start a pension. That’s the wrong way round. The FSA should make a New Year’s resolution to encourage saving and discourage debt.